Settlement marks the latest big government agreement with a US banking giant
in the aftermath of the housing bust

US banking giant Morgan Stanley has agreed to pay $1.25bn to settle charges that it misled investors on the sale of mortgage-backed securities ahead of the housing collapse.

Morgan Stanley will boost its legal reserves by $150m to pay the settlement to the US Federal Housing Finance Agency (FHFA), the bank said in a securities filing.

The settlement marks the latest big government agreement with a US banking giant in the aftermath of the housing bust.

In November, JPMorgan agreed to a $13bn settlement on mortgage-backed securities. Bank Of America and Goldman Sachs have also announced big settlements.

The settlement resolves a September 2011 suit in which the FHFA, the conservator of Freddie Mac and Fannie Mae, alleged that Morgan Stanley made "untrue statements and material omissions" in the sale of about $11bn-worth of mortgage security securities, Morgan Stanley said in a 2013 securities filing.